Analysts reckoned that the prospects of rising tariffs on Chinese products will increasingly make Malaysian glove makers more competitive in the North American market.
PETALING JAYA: The rubber glove sector is starting to look like a safe harbour for investors amidst fears of higher tariffs and more stringent trade restrictions by the United States on China.
President-elect Donald Trump has vowed to impose a blanket tariff of up to 20% on every foreign import entering the United States, and a harsher 60% to 100% rate for Chinese goods.
Analysts reckoned that the prospects of rising tariffs on Chinese products will increasingly make Malaysian glove makers more competitive in the North American market, thus attracting interest of investors.
“The imposition of tariffs on China will further ease the price war between the Chinese and Malaysian glove manufacturers. Previously, China was dumping its inventory in the market at break-even prices to clear stockpiles following the Covid-19 pandemic which hurt average selling prices (ASP).
“Now the price war is over and the ASP of gloves has stabilised, which is good for the sector,” Rakuten Trade head of equity sales Vincent Lau told StarBiz.
Overall, the sentiment surrounding the glove sector has improved with the share prices of major glove companies like Top Glove Corp Bhd
, Kossan Rubber Industries Bhd and Hartalega Holdings Bhd seeing about 35% to 40% increases year-to-date.
Top Glove, which has the fourth most actively traded security yesterday, closed five sen higher at RM1.22 while Hartalega rose 12 sen to RM3.69 and Kossan was up 16 sen to RM2.62. Supermax Corp Bhd rose three sen to 88.5 sen.
Lau added the strengthening of the US dollar against the ringgit is also another plus for the local glove manufacturers given that they derived most of their earnings from exports.
The ringgit closed at RM4.45 against the US dollar yesterday, down from its three-year high of RM4.12 earlier this year.
“The weaker ringgit supports exports. The oversupply and industry overcapacity in the glove sector is a thing of the past. Manufacturers have also slowed expansion and carried out rationalisation initiatives to consolidate operations, adding to the sector’s positive outlook,” he said.
Lau is of the view that share prices of glove counters will likely hold at around current levels but little chance of hitting pandemic period highs.
Tradeview Capital chief executive officer and founder Ng Zhu Hann said now is a good time for local glove players to recover from their multi-year lows.
“Many glove companies are starting to show a turnaround, with increased factory capacity utilisation. As a result, the share prices of glove stocks are moving,” he said.
Ng said with proposed tariffs by the United States on China, could lead US importers to securing supplies from Malaysian companies.
“Chinese glove makers in turn will start to look to markets where they would not be affected by tariffs like Europe and possibly Japan. However, Japan’s emphasis on quality would mean that they are likely to continue to prioritise orders from Malaysian glove manufacturers over Chinese suppliers,” he said.
Ng expects increased demand, higher ASPs due to tariffs as well as a stronger greenback against the ringgit would benefit glove makers.
“There is also improvement in operational costs as seen in lower oil and chemical prices. As such, there will be some margin expansion for local glove companies as well,” he said.
Analysts warned heightened competition may arise in markets where China is diversifying to, particularly in regions where local glove companies also have a presence.
